A landmark R&D tax case has seen HMRC lose its bid to stop an appeal from software company Get Onboard Ltd (GOL) – highlighting the urgent need for greater clarity over its stance on software as R&D.
GOL brought the claim after having its submission rejected on the grounds that its work did not qualify as R&D as set out in the Department of Business, Energy and Industrial Strategy (BEIS) guidelines.
Adam Bointon, Technical Director at randd uk, the Derby-based R&D tax specialist, said: “I think many people in the industry would agree with me that software is a difficult case for HMRC.
“Because all software is relatively new and generally considered an innovative solution to any number of issues, it’s difficult to understand the difference between novel output and functionality and transforming or extending the underlying computer science/technology.
“To address this issue HMRC created a special set of guidelines in addendum to the CIRD81900, but challenges still persist.”
Despite HMRC’s case, the Tribunal judge found that GOL’s project met the requirement of developing technology that was not already publicly available or readily worked out by another in the field, and that this formed the foundation of the project.
He further ruled that the project required the resolution of technological uncertainties, which a component professional working in the field could not have readily resolved, therefore, permitting GOL to appeal against the denial of its claim.
This case, says randd uk, is illustrative of the fact that software sectors require additional clarity if they are to forge a successful relationship with HMRC, incentivise the most innovative developments and buoy the scheme itself.
“I think there’s now a definite perception of caution from accountants,” said Adam, “when it comes to software. Just developing a new app or piece of functionality for an existing software is not necessarily qualifying R&D, even if it is novel and innovative.
“From the sector itself, there’s a definite reticence to claim, and we’ve heard anecdotal stories about owners in software/tech firms unwilling to put further claims in until there is a clearer, more positive outlook from government for this type of business.”
Relying on his extensive experience in R&D tax, Adam also commented on the precedent that the case is likely to set. “In a way, it is damaging to HMRC. In the future, it may well be used against it as a Higher Court judgment.
“It highlights the risks of a lack of expertise in R&D, for businesses and accountants, but also at HMRC. In this instance, the testimony given by the HMRC case officer was pretty much disregarded when it came to the technical aspects of the claim.
“This really illustrated that without significant training or background knowledge, case officers cannot be left to make judgements they know little about.
“If a business is selected randomly by HMRC, it may be assigned a case office from the bulk enquiries team. If it is not, in my experience, businesses should be ready to make an appeal against a ruling from HMRC.
“If a case officer has been assigned, then the outlook is much more positive and a push for a meeting with the inspector and the competent professionals should resolve any issues, provided you get the right advice early on.”
For advice on R&D tax relief from the specialists, please contact a member of our advisory team today.
